Mayor Jukowski vetoes Pontiac City Council pension resolution

PONTIAC -- Mayor Leon Jukowski has vetoed a City Council resolution that challenged the reorganization of the city's pension board for general retirees.

"I do not believe that it would be in the best interest of the citizens of Pontiac to incur additional legal fees to challenge" the executive order to cut the number of pension board trustees to five, Jukowski said in a letter explaining his Dec. 24 veto.

"I hope the City Council will see fit to appoint their two members to the pension board so that they can help the pension system move forward and try to do everything we can to protect retiree health care," the mayor said Friday.

The City Council can override a mayoral veto with a two-thirds vote.

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Emergency Financial Manager Lou Schimmel cut the number of trustees on the General Employees Retirement System board from 11 to five on Dec. 11 with an executive order. The board is now composed of a Pontiac City Council member, one retiree appointed by council, the mayor, the finance director and one mayoral appointee.

"We have a quorum and we are conducting business," Jukowski said.

The three members of the new pension board who have been appointed so far are Jukowski and Finance Director John Naglick, who serve by virtue of their position, and Treasurer Sheryl Stubblefield, who is Jukowski's appointee. All three served on the previous board.

The council has not made appointments to the new board, and its Dec. 13 resolution was to either seek a judicial ruling or join a lawsuit challenging the changes to the pension board.

"No legal action has been taken yet," said attorney Alec Gibbs, who represents the City of Pontiac Retired Employees Association. "We're still exploring all of our avenues," he said.

"We definitely do not believe it was on solid legal ground," Gibbs said of Schimmel's order to change the pension board's composition.

Schimmel's order to downsize the pension board came less than two weeks after the board voted against studying the possible privatization of the pension plan, or the use of its surplus funding to pay retiree health care costs.

The pension plan has about $416 million in assets and is 153.5 percent funded, according to city officials. The city has $180 million in long-term retiree health care obligations and a $6 million annual structural deficit going forward that's caused by retiree health care costs.

"Under the new emergency manager law, Mr. Schimmel will have the ability to say, the only way to fix the city's budget problems is to eliminate retiree health care," Jukowski said.

Gov. Rick Snyder signed Public Act 436 of 2012 on Thursday, a new emergency manager law that will take effect March 27.

"If it were to come to that, do we have other options to make sure retirees get health care?" Jukowski said. "That's the whole point of this exercise."

District 4 Pontiac City Councilman Randy Carter said: "Pontiac will come out of this. The issue is, I don't think the residents should be paying for an indebtedness that former elected officials and mayors and state legislatures created.

"I believe those kinds of things like Mr. Schimmel brought up -- employees' (and) retirees' health care -- (are) not a service that the taxpayers benefit from," Carter said Thursday.

District 5 City Councilman Donald Watkins said he doesn't think Schimmel had the legal authority to change the pension board.

"I don't believe (either emergency manager law) gave him the authority to do that," Watkins said Thursday.

"I fervently believe ... some of the proceeds from the sale of the waste treatment facility should have went toward the retiree health care costs," he said.

This fall, the city closed a $55 million deal to sell excess capacity in its wastewater system to the Oakland County Water Resources Commission.

After receiving the proceeds, the city paid off a $30.2 million in outstanding debt; paid $2 million in a settlement with General Motors Corp. for past property tax appeals; placed $5 million in a reserve fund for maintenance for the wastewater system; and deposited $17.8 million in the city's general fund.

At its first meeting on Dec. 14, the three members of the pension board voted to release pension data so ways of using the pension's surplus to pay for retiree health care can be studied.

The City of Pontiac Retired Employees Association's position is that "the retirement board has to consist of representatives selected by the retirees themselves," attorney Gibbs said, and indicated that the retiree group is opposed to using the pension's surplus to pay for health care.

"Our position is that it's illegal under both state and federal law," he said of using the pension's surplus to pay for health care.

In his veto letter, Jukowski said the pension plan's over-funding came from merging with other city plans.

"While some have noted that the General Employees Retirement System is approximately 150 percent funded as proof that it has been better managed than the Police and Fire Retirement System, that over-funding is the result of combining the (former Pontiac General) Hospital Employees Retirement System, which was almost 273 percent funded, with the City and Silverdome retirement systems, which were about 127 percent funded in 2003," the mayor said.

Emergency Financial Manager Schimmel said multiple concerns led to his decision to change the pension board.

"I think the travel policy for 11 board members traveling around the country for supposedly educational purposes was of concern," he said.

The mayor's veto letter said the pension board spent $81,042 on airfare, transportation and meals in 2011 and $63,779 in the first 10 months of 2012.

"I think their ethics policy which was having lavish dinners and entertainment of sorts paid for by the pension board was wrong," Schimmel said.

"I think the new board has already dealt with both of those issues: (you can) go to these conventions, we'll pay your seminar fee or whatever, but we don't want you being influenced by going out to lavish dinners with financial advisers. Pay your own way," he said.

Additionally, "I'm concerned about the fact that the board is running around saying we've done such a wonderful job when the wonderful job has, as part of it, the fact that it was way overfunded and they had nothing to do with the way overfunding," he said.

"And, the overfunding includes as part of it the ability to lose $4 million on an investment and hardly have it be noticed," Schimmel said, referring to an investment by the pension board in Onyx Capital Advisers that is the subject of civil and criminal complaints in U.S. District Court.

The pension board's financial advisory costs are about $4 million annually, Schimmel said.

"That's excessively high for a year's worth of work to provide investment advice, and I believe the number should be half that," he said.

"If they decide, or if anybody decides to bring legal action against me for doing what I did, I'm going to have no problem explaining to a judge the things I just itemized," he said.

"I think I would be remiss if I were to ignore the things that I just told you," Schimmel said.

"I'm (driving) right down the avenue of what an emergency manager ought to be doing."